What is a benchmark?
A benchmark is a standard against which the performance of your investments can be measured. To be meaningful, the benchmark must be appropriate to the market you’re investing in. The appropriate benchmark for a global share portfolio is a measure of how the world share market performs; for bonds, how the bond market performs; for cash, the return on world cash. There’s no point in comparing a global share portfolio against the performance of a term deposit, or a bond portfolio against a property trust.
Why are benchmarks important?
Benchmarks are a useful tool for investors to judge whether or not their investment manager is adding value; that is, are returns higher than the benchmark and, therefore, is the manager adding value or not? As we and others have emphasised, there are real dangers in focusing on short-term comparisons of investment performance; even the very best investment managers fail to deliver benchmark performance in some years.
Why would our benchmarks change?
Changing benchmarks is not something that we would do often, and not without rigorous thought. Benchmarks for a portfolio are meant to align with the default investment strategy; when the default investment strategy of a portfolio changes (a rare event), then so should its benchmark.
In 2011 after 22 years of investment management, we made changes to our benchmarks; for example:
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The emergence of developing countries has caused the MSCI World Index, a developed country equity index, to be an inappropriate representation of the ‘world share market’. We therefore changed our share market benchmark to the MSCI All Country World Index – which includes emerging country share markets.
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We changed the New Zealand currency exposure in the benchmarks to accurately reflect the higher NZD exposure, than is reflected in existing benchmark allocation.
The Gareth Morgan KiwiSaver Scheme and GMI Superannuation Scheme benchmarks
Unless otherwise specified our returns and benchmarks are always shown after all taxes and fees have been deducted.
Cash benchmark (Gareth Morgan KiwiSaver Scheme only)
The Cash benchmark is designed to measure a portfolio of cash and constitutes 100% ANZ New Zealand 90 Day Bank Bill Gross Return Index.
CashPlus benchmark (Gareth Morgan KiwiSaver Scheme only)
The CashPlus benchmark is designed to measure a portfolio of cash and fixed interest and constitutes 75% ANZ New Zealand 90 Day Bank Bill Gross Return Index and 25% ANZ New Zealand Government Bond Daily Gross Return Govt Stock Index.
Conservative benchmark
The Conservative benchmark is designed to measure a ‘conservative’ portfolio of fixed interest and equities and constitutes 42.5% ANZ New Zealand 90 Day Bank Bill Gross Return Index, 42.5% ANZ New Zealand Government Bond Daily Gross Return Govt Stock Index,10% MSCI All Country World Index, 5% MSCI All Country World Index 100% Hedged to NZD Index.
From 1 October 2007 through to 31 December 2010, the Benchmark constitutes 40% ANZ New Zealand 90 Day Bank Bill Gross Return Index, 40% ANZ New Zealand Government Bond Daily Gross Return Govt Stock Index, 10% Gross MSCI the World Index, 10% Hedged Gross MSCI the World Index.
Balanced benchmark
The Balanced benchmark is designed to measure a ‘balanced’ portfolio of world equities and fixed interest and constitutes 22.5% ANZ New Zealand 90 Day Bank Bill Gross Return Index, 22.5% ANZ New Zealand Government Bond Daily Gross Return Govt Stock Index, 20% MSCI All Country World Index, 35% MSCI All Country World Index 100% Hedged to NZD Index.
From 1 October 2007 through to 31 December 2010, the Benchmark constitutes 20% ANZ New Zealand 90 Day Bank Bill Gross Return Index, 20% ANZ New Zealand Government Bond Daily Gross Return Govt Stock Index, 40% Gross MSCI The World Index, 20% Hedged Gross MSCI the World Index.
Growth benchmark
The Growth benchmark is designed to measure the equity market performance of all countries with a moderate position in cash and fixed interest and constitutes 7.5% ANZ New Zealand 90 Day Bank Bill Gross Return Index, 7.5% ANZ New Zealand Government Bond Daily Gross Return Govt Stock Index, 30% MSCI All Country World Index, 55% MSCI All Country World Index 100% Hedged to NZD Index.
From 1 October 2007 through to 31 December 2010, the Benchmark constitutes 100% Gross MSCI the World Index.
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Management fees are deducted at up to 1%pa for the Gareth Morgan KiwiSaver Scheme and up to 1.5% pa for the GMI Superannuation Scheme, as per the fee schedule, with the exception of the Cash portfolio which has management fees deducted at 0.4%pa and the CashPlus portfolio which has management fees deducted at 0.7%pa. Management fees are considered tax deductible.
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The ‘MSCI All Country World Index 100% Hedged to NZD Index’ is a custom index calculated by MSCI for, and as requested by, GMI.
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Transaction fees on Government Bonds are modelled at 0.02%pa.
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Transaction fees on equities are modelled at 0.075%pa.
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Tax on bonds and bank bills is modelled by multiplying the net monthly change by the top PIR.
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Tax on equities is modelled by multiplying 5% by the top PIR.
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The ‘Gross MSCI the World Index’ constitutes the monthly return on the Gross MSCI the World Index (USD) added to the monthly return on the MSCI World FX Hedge Index (USD), adding the return for entering into a NZDUSD 1 month (31 day) forward contract on the final working day of the previous month, with that contract equal in value to the Hedged Gross MSCI The World Index on the final working day of the previous month, and closed out at the NZDUSD spot rate (i.e. mismatches in forward contract length are ignored) on the final working day of the month.
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Private Portfolio benchmarks
Conservative and Balanced benchmark
Client benchmarks for Balanced and Conservative mandates are individually tailored according to each client, and are a function of the client's allocation to equities and growth assets, cash and fixed interest.
The benchmark indices used are:
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ANZ New Zealand Government Bond Daily Gross Return Govt Stock Index
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Barclays Capital Bond Composite-Global Index
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MSCI All Country World Index
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MSCI All Country World Index 100% Hedged to NZD Index
Each client will have a different weighting to each index, depending on their individual mandate.
Growth benchmark
The Growth benchmark is designed to measure the equity market performance of all countries and constitutes 50% MSCI All Country World Index, 50% MSCI All Country World Index 100% Hedged to NZD Index.
From inception through to 31 December 2010, the benchmark constitutes 100% Gross MSCI the World Index.
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Management fees on benchmarks are modelled at 0.5%pa on fixed interest and cash, and 1.5%pa on equities and growth assets.
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The 'MSCI All Country World Index 100% Hedged to NZD Index' is a custom index calculated by MSCI for, and as requested by, GMI.
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Transaction fees on bonds, including world bonds are modelled at 0.2%pa.
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Transaction fees on equities are modelled at 0.015%pa.
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Tax on bonds and bank bills is modelled by multiplying the net monthly return by 33%.
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Tax on equities is modelled by multiplying 33% by 3.5%pa. Prior to the FDR regime change on 31 March 2007, tax on equities was modelled by multiplying 33% by 2.5%pa, to reflect the average dividend yield.
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1/12 of annual deductions are made monthly.
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If you have any questions about benchmarks, please feel free to contact us.